Market Turning Points

Precision timing
for all time frames through a 3-dimensional approach to technical
analysis: Cycles - Breadth - P&F and Fibonacci price projections

"By the Law of Periodical Repetition, everything which has
happened once must happen again, and again, and again -- and not capriciously,
but at regular periods, and each thing in its own period, not another's,
and each obeying its own law... The same Nature which delights in periodical
repetition in the sky is the Nature which orders the affairs of the earth.
Let us not underrate the value of that hint." ~ Mark Twain

Current Position of the Market

Very Long-term trend - The continuing strength in the indices is causing
me to question whether we are in a secular bear market or two consecutive,
cyclical bull/bear cycles. In any case, the very-long-term cycles are down
and, if they make their lows when expected, there will be another steep and
prolonged decline into 2014-16 (no change).

Long-term trend - In March 2009, the SPX began a move which evolved
into a bull market. Cycles point to a continuation of this trend for several
more weeks.

SPX: Intermediate trend - The SPX has probably completed its correction,
but there may be some additional consolidation before it makes a new high (no
change).

Analysis of the short-term trend is done on a daily basis with the
help of hourly charts. It is an important adjunct to the analysis of daily
and weekly charts which discusses the course of longer market trends.

Daily
market analysis of the short term trend is reserved for subscribers. If you
would like to sign up for a FREE 4-week trial period of daily comments, please
let me know at ajg@cybertrails.com.

Market Overview

There is better than a fifty-fifty chance that the consolidation of the intermediate
trend ended on Friday. Here are the reasons why it may have -- and why we cannot
yet be 100% certain:

-- A 9-mo cycle low was due in this time frame. It could still bottom next
week, but there are signs that it may have bottomed on Friday. What is unclear
at this time, is what kind of a rally will develop from here if one is to start.

-- The rally from 1265 ended with a small Head & Shoulders pattern which
is very noticeable on a 60m chart, as we will see later. The low of 1306.51
satisfies the H&S projection.

-- The 1356 top made a distribution pattern with a total downside projection
to 1299, but also had an interim phase projection to 1306 filled by the low
made on 7/13. Since most of the downside projection has been met, it was conceivable
that a reversal of the near-term trend could be made from this level. But since
the index still has the potential to reach its extreme target of 1299, it will
have to show us that it is not willing to go any lower.

-- On 7/13, the SPX had retraced 50% of its rally from 1265 to 1356. It subsequently
went sideways and held that level for a whole week. In the last two hours on
Friday, there was an uptrend which started near the low of the consolidation
(at 1308.11), and which carried to its very top at 1306.30, coming within two
points of what is needed for a break-out to take place.

-- The action of the last two days has caused the hourly indicators to give
a buy signal by starting an uptrend. However, the A/D did not convincingly
support the move and a confirmed break-out was not established. Monday will
decide if we keep going or fall back!

-- The QQQ led the charge, which is a positive.

Let's look at some charts.

Chart Analysis

We'll start with the same medley of time frames for the SPX that I showed
last week. This is a good way to get a total perspective of the market. Starting
with the Weekly Chart, on the left, we can see why we don't have the
greatest technical picture right now.

First, is the long term becoming a macrocosm of the short term? It is possible
that an important Head & Shoulders pattern has been forming over the past
six months. If it has, it would turn out to be an inversion of the bottom pattern
prior to the uptrend, and the indicators are not denying this possibility.
Neither the MSO nor the MACD has given a confirmed buy to the uptrend which
started at 1265. If prices stall at 1256 or below, this will give increased
credibility to the H&S pattern. However, because of other factors, at this
time the H&S pattern is given a low probability rating.

As of Friday, the Daily Chart was non-committal about the possibility
that a reversal had taken place. The SPX, which had broken below its moving
averages, has now rallied up to the lower one. It must cross them to the upside
to signal an uptrend.

The two top indicators are still in a downtrend, but they are positive and
the lowest one ticked up on Friday, although not enough to signal a reversal.
From here, they could go either way and if it's down, it could signal another
attempt to reach the lowest projection of 1299.

The Hourly Chart should give the bulls some hope. Last week, the SPX
appeared to find good support at 1306 (the last interim P&F projection
before the maximum target of 1299) and, since then, it has developed a bullish
profile. The entire correction from 1356 looks like a zig-zag which completed
at 1306 with a truncated 5th wave of the second pattern.

After touching 1306 and fulfilling the H&S requirement, the index built
a two-day base which, on the P&F chart, measures 29 points -- enough to
send prices back above 1331. This is the critical level which must be overcome
for the SPX to get back into an uptrend. The action of the past few days not
only arrested the decline, but the indicators developed positive divergence
in the process. On Friday, the beginning of an (unconfirmed) uptrend clearly
started.

The QQQ --which had been relatively weaker than the SPX during the decline
from 1370, and which remained pretty much on an even basis with it during the
pull-back from 1356 -- took the lead on the upside. This is potentially bullish,
but it had a lot of help from Google which soared after Thursday's earnings
report.

So why am I not more ecstatic about the prospects for a resumption of the
uptrend? Only because we don't really have a confirmation, yet. Neither the
DJIA, nor the SPX have confirmed a break-out from their consolidation pattern.
As I mentioned earlier, the SPX needs two more points to get above the resistance
level. Although it did close slightly outside of its downtrend line, neither
the DJIA nor the RUT have broken their trend lines. This fact, and the unconvincing
A/D activity makes the break-out questionable.

At best, the break-out was a mixed bag which will need a strong confirmation
next week. If we don't get it, we will either extend the base for a few more
days, or we could decline to the final target of 1299.

Cycles

The low of the 8.6-yr Martin Armstrong cycle could have been an important
turning point for the market. In conjunction with some less important cycles,
it may have been responsible for the correction from 1370, as well as for the
resumption of the uptrend from 1258.

The 9-mo cycle was apparently influential in causing the consolidation from
1356. Since we are currently in the time frame when it is supposed to make
its low, it may now be ready to take the market to a higher level.

There may be enough time for this to take place before the 3-yr cycle (due
in October) begins to interfere with the uptrend.

Breadth

Last week, the Summation Index (courtesy of Stockharts.com) only had a very
small correction relative to the stock market. This is encouraging action for
the bulls, especially since it has now strongly rebounded in positive ground
after a brief dip under zero.

The long-term pattern, however, is not as encouraging. Ever since its peak
of October 2010, it has shown a decelerating trend which does not bode well
for the longer term. It is a series of lower highs and lower lows that, if
it continues, can only lead to an important market top.

Sentiment:

By contrast, the SentimenTrader (courtesy of same) is telling us that we should
not worry too much about short-term negativity. There is still plenty of green
showing in the long-term indicator -- where it counts the most! However, the
short-term one is only neutral, and that would tend to put the market in a
neutral near-term position, consistent with an unconfirmed attempt at breaking
out on Friday.

The ratio of NDX to SPX is also giving us a short-term bullish picture. It
has broken out of a downtrend line (you have to imagine it) going back to Last
November.

Note that in May, when 1370 was reached, this was one of the indicators that
forecasted an imminent correction in the market. Now, it is sounding a more
cheerful note, telling us that there is a good chance that the SPX will make
a new high.

The VIX is another sentiment indicator which deserves our attention.
Look at what it did on Friday! Its action was far more negative than the SPX's
was positive. This gives the bulls some hope that the week's closing action
was not simply engendered by the expiring options.

Note also on this hourly chart, that the indicators of both indices are showing
divergence, giving us a warning that the trend might be about to change.

COPPER

It is time to re-visit Dr. Copper. It's been about a month since we last looked
at its chart. At the time, it looked as if it could be ready to extend its
uptrend. There is no longer any doubt.

The following is a weekly chart of JJC, the copper ETF. Dr. Copper has a tendency
to lead the market. It made a bear market low almost three months before SPX,
in December 2008, and made an intermediate high in mid-February, a couple of
months before SPX. However, it did not make its previous bull market high until
about 6 months after the equity indices, double-topping another four months
later. Therefore, we cannot conclude with confidence that it will continue
to lead the market but, if we turn to its P&F chart, we can at least get
an idea of where the current up-move is heading. It has a target of 61, essentially
a double top which, if this turns out to be correct, may forecast the next
significant market top.

For now, the weekly indicators have just signaled a buy, so it should be clear
sailing for the next few weeks.

XLF - FINANCIAL SELECT SECTOR SPDR (weekly chart)

If we are going to be completely objective, we also have to consider this
other time-tested indicator. It may even be a better leading indicator than
Dr. Copper. XLF topped in May 2007, five months before the rest of the market,
and it bottomed a week before SPX.

Its current chart is not very bullish! Since it made a bear market low, it
has only managed to retrace 35% of its bear market decline, making a high on
4/10. In February 2011, it double-topped, and has been moving down ever since.
On Friday, it almost returned to the low it made six weeks ago.

This index also needs to be watched carefully in the coming weeks. If it continues
to drastically underperform the rest of the market and shows signs of wanting
to break below its August 2010 low, it will be a big red flag! Especially if
copper also begins to decline at the same time.

Summary

In the near term, the SPX appeared to start a break-out move at the
end of the trading day, on Friday. In spite of some positive signals, the move
lacked confirmation and it is now incumbent on Monday's trading to provide
the needed follow-through.

In regard to the medium term, whether or not the break-out is confirmed
on Monday, the odds still favor a move to new highs, most likely into an important
top! The entire corrective move from 2/22 may be that of a triangle which completed
last week.

There are storm clouds gathering on the horizon for the longer term.
The major cycles due to make their lows in 2014-15 cannot allow this uptrend
to continue much longer. Sooner, rather than later, they will begin to exert
a downward pressure which will overcome the upward lift of the lesser cycles
that caused this bull market and which, in any case, are near the peaks of
their phases.

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The above comments about the financial markets are based purely on what I
consider to be sound technical analysis principles uncompromised by fundamental
considerations. They represent my own opinion and are not meant to be construed
as trading or investment advice, but are offered as an analytical point of
view which might be of interest to those who follow stock market cycles and
technical analysis.